Jury Awards Function One $11.4 Million In Lawsuit With Accudata Systems

In the culmination of solution provider face-off in court last week, a jury awarded Houston-based Function One Consulting Group $11.4 million, including $1 million in punitive damages, in its lawsuit against Accudata Systems.

The jury found Accudata Systems had made false reports to the IRS, FBI and Texas Workforce Commission about Function One's classification of workers as independent contractors, alleging that the workers were incorrectly classified for tax purposes.

The false reports also were allegedly sent over to Function One's then-largest customer BG Group, which ultimately resulted in the loss of the customer. Accudata Systems also bought shares of BG Group so it could utilize the shareholder whistleblower process, said Steven Mitby, partner at Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, P.C., the firm representing Function One. The month after the allegations emerged, BG Group began renegotiating its contract with Function One, Mitby said, and hiring the company's consultants independently instead of through Function One as before.

"This is the first time anything this serious has happened. Obviously, there's dirty tricks in every business but it's pretty unheard of to go after anyone's customer with false accusations," Mitby said.

Accudata Systems declined to comment.

"From what I can tell, [the area] is extremely competitive. There's a lot of companies operating in the space with high profit margins. Every big company is using a consulting firm like this in one role or another," Mitby said, adding that Accudata Systems itself has practically doubled in the past five years.

The lawsuit started in late 2009 after a series of events between the two competitors. Function One allegedly hired several former Accudata Systems employees, which is when the false allegations over worker classifications began. Function One filed suit. Accudata Systems fired back with allegations of its own, claiming "mental anguish" from a Function One private investigator. The Accudata Systems claims were later dismissed by the judge.

Accudata Systems also allegedly was sending emails to its own employees. Rich Johnson, owner of Accudata Systems, wrote an email to all employees in January 2010, addressing the lawsuit and denying the allegations, further saying the company will continue to grow and "solidify our position as the BEST IT integrator in the country."

"They attacked on every front," Mitby said.

Mitby said he wasn't sure if Function One would be able to regain business with BG Group or see a jump in business going forward. "That’s hard to say," Mitby said. "At least they’ll be able to pitch for business -- a level playing field."

Doron Kempel says selling hyper-convergence can be challenging for solution providers, but success will come from taking business from competitors that are unprepared or hesitant to embrace the technology.